Many of us will recall the debates on the implications of the introduction of the Euro on loan documentation. Now we are looking at, potentially, the reverse situation.
The Loan Market Association (LMA) has recently published a note on the Euro and the impact that a Eurozone shake-up could have on loan agreements.
It looks at issues which could arise if a Eurozone member departs from the currency union. For example, if a loan is in Euros, and the borrower is based in a Eurozone country which leaves the Eurozone, (a "Departing State"), will the borrower still be obliged to repay the loan in Euros or the new currency of the Departing State?
The answer would depend on the overall situation, for example whether the Departing State leaves the Euro and establishes a new currency with or without EU consensus or EU legislation being put in place. The terms of the loan documentation and its governing law would be other relevant factors.
A "change of currency" provision in a loan document may not be sufficient to deal with the situation. It would depend on its exact terms, however if such a provision was not designed to deal with this kind of event, it is unlikely to be of assistance. Similarly a "currency indemnity" provision may not be of assistance.
Finally a provision defining the currency of the loan, making it clear that the payment is due, for example, in Euros, rather than the currency from time to time of the borrower's jurisdiction, would be of assistance.
These issues will apply to all sorts of documents used in finance transactions, not just loan agreements. No doubt there will be an ongoing debate on how the issues may best be resolved, with perhaps some amendments to standard forms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
